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Galis: What's a workable principle for taxation?

published Thursday, November 29, 2012

Richard Zimdars, a regular local contributor to the Banner-Herald’s editorial page, endured with more grace than I would have the insults to his occupation by OnlineAthens.com commenters and their willful misreading of his recent column headlined “President should talk about income inequality.”

One of these online worthies even cheerfully copped to a “hatchet job” on Zimdars — “undeserved” no less! — but went on to say, just as cheerfully, that he certainly hoped his admitted gratuitous rudeness wouldn’t discourage the good professor from further contributions to the editorial page.

Unless I’m missing something apparent to the more acute eye of the commenters, Zimdars wrote with the modest objective of pointing out that economic inequality in the United States has increased dramatically over the last several decades.

Hardly anyone disputes that, although there’s vigorous disagreement about whether anyone should care. Zimdars thinks we should care, but proposed no remedy, concluding only that President Obama should address the issue.

In the spirit of dialogue that Zimdars is gamely trying to promote, I want to take his reflections one step further than he did. What makes the well-attested phenomenon to which he called attention so hard to get our heads around is that even those who think there’s something “unfair” or “unjust” about the breathtaking disparities between the best- and the worst-off in our country haven’t done much to articulate any principle that distinguishes between a fair and an unfair allocation of the national wealth.

But as luck would have it, some of the commenters disparaging Zimdars’ views were blindly stumbling around in the neighborhood of just such a principle.

Believing, in the absence of any evidence whatever, that Zimdars advocates absolute equality of incomes, wealth, grades among his students and whatnot, our homegrown political philosophers pointed out that an arrangement like that would utterly destroy the incentive for people to undertake the vast array of enterprises and occupations that a society of over 300 million souls needs to flourish.

And you know what? They’re absolutely right, which points in the direction of a principle for determining when economic disparities have become so great as to offend justice. Let’s frame the question this way: If we were designing a social order from scratch, what departures from absolute economic equality would we accept as the basis for our mutual cooperation? One principle that might occur to us is that we accept disparities of income and wealth as long as they’re to everybody’s benefit. Who could object to that?

So, for example, since I can’t remove my own appendix if I need to get rid of it, it’s obtuse for me to object to people being able to look forward to earning enough as surgeons to motivate an adequate supply of them to undergo the education and training and bear the opportunity costs involved in acquiring that competence. It’s obtuse for me to object to that earning power, even if it’s substantially greater than mine. If you generalize this example across the entire economy, you get an idea, anyway, of how this principle works.

But here’s where I suspect Zimdars and the online political philosophers would part company. Let’s stipulate that you can’t fund the national government of a world superpower with voluntary contributions from its citizens. I don’t have space to get into this, but decision theorists have long since figured out that schemes of purely voluntary cooperation can’t even get off the ground when each participant is acting on nothing but his or her own rational self-interest. Bad news for hardcore libertarians, but there you have it.

So the only way to fund effective government is through a tax regime backed up by the coercive power of the state. And then, the question is: What’s the fair, just level of taxation?

There’s no way to calculate any such level in the abstract. But it seems reasonable that the portion of the national income that should be available for taxation — where “available for taxation” doesn’t necessarily mean “should actually be taxed”— is whatever the economy casts up, over and above what it takes to motivate people to embark on all the occupations and enterprises that are the hallmark of a flourishing society.

Since our current tax burden is as low as it’s been in 50 years by some measures, it’s reasonable to think that economic inequality could be diminished significantly now without running afoul of the principle of fairness some of the paper’s online commenters, in their eagerness to take it to Zimdars, unwittingly suggested.

• Leon Galis, a retiree living in Athens, is an occasional contributor to the Athens Banner-Herald’s editorial page.

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